Harvest From the Times: Bank Fees and Debt Derails Legal Career

by Jeff Sovern

Some interesting articles in the New York Times today:  One article, Bank Fees Rise as Lenders Try to Offset Losses, may shed some light on the claim that banks are raising credit card fees in response to passage of the Credit CARD Act.  It seems that banks are raising many fees, including fees that have nothing to do with credit cards, like stop-payment charges and ATM fees.  So maybe the raising of credit card fees has nothing to do with credit cards, specifically, but with attempts to generate money from any available source. 

An article that might pain students now studying for the bar: Aspiring Lawyer Finds Debt is Bigger Hurdle than Bar Exam, about the New York Appellate Division's denial of a candidate's application to be admitted to the bar because of the failure to make substantial payments on student loans.  The candidate's loans jumped from $270,000 to $400,000 in four years, at least in part because of fees added by collection agencies.

Consumer Law & Policy Roundup

by Deepak Gupta

So much is happening so quickly in the world of consumer law and policy right now that it's hard to keep up, let alone blog about it in our spare time. In this post, I'm taking advantage of the fact that I've just finished a major briefing project to point out just a few of the more interesting stories--an assortment of (1) things I've been meaning to blog about, (2) developments in the last day or two, and (3) stories that are continuing to unfold.  

In the coming days, I also plan to say something about how the consumer docket is shaping up for the Supreme Court's next term. (There are interesting cases on, among other things, arbitration, class actions, debt collection, and the interaction between the bankruptcy reform law and the First Amendment.)

• Auto bankruptcies and consumers' future claims. Chris Jensen at the Times had a story today on the different treatment of consumers' future products claims in the two big automaker bankruptcies: The Chrysler sale extinguished such claims, while the GM agreement will allow them (although it's unclear at this point whether that includes lemon-law claims). My Public Citizen colleague Adina Rosenbaum has been serving as lead counsel for the national consumer groups in both the GM and Chrysler cases. The litigation has been incredibly fast-paced; the Chrysler case made its way through every level of the federal court system--from bankruptcy court to the Supreme Court--within a matter of days. We recently posted the GM objections; here are the petition for certiorari and stay application from the Chrysler case, which we somehow neglected to post earlier.             

• Not everyone likes reinvigorated consumer protection: Given everything that's happened over the past couple years, is anyone still against increased enforcement of consumer protection laws?  Well, the folks at the conservative Point of Law blog reported today on our former colleague David Vladeck's first joint press conference as head of consumer protection at the FTC, and took the opportunity to remind us that they still don't like robust regulation. They do like Cass Sunstein's views on cost-benefit analysis, however, and are quite content to have him -- as opposed to, say Lisa Heinzerling -- running regulatory affairs at OMB.  (Oddly, it appears that Sunstein's published musings on animal rights are what's holding up his nomination in the Senate!)

• A new consumer financial protection agency?: Along the same lines, the Times reports that banks don't like plans for the new consumer financial protection agency, and "are placing top priority on killing President Obama's proposal." Public Citizen and Americans for Financial Reform released statements on the White House proposal, both stressing the need to supplement the agency with private rights of action for consumers. Graham Steele has more at the Fair Arbitration Now blog. The WSJ had a story recently focusing on Elizabeth Warren's central role; you can read one version of her original proposal here. Finally, here's the Times editorial making the case for a new agency.  

• The Cuomo bank preemption decision. Chris Peterson blogged on Monday about the Supreme Court's decision, in the Cuomo v. OCC case, to allow states to enforce their fair-lending laws against banks in court. The OCC's strange "enforcement preemption" argument--under which substantively non-preempted state law could not be enforced by the states--was thus rejected. You can read Justice Scalia's opinion here, the SCOTUSblog summary here, and some interesting thoughts at the Credit Slips blog by Bob Lawless here. Professor Lawless had a similar reaction to mine--that by preempting state subpoenas but not lawsuits, the decision creates a strange incentive for states to sue first and ask questions later. 

• Times profiles consumer advocate on energy policy: A really nice profile today of Tyson Slocum, who runs our energy policy shop, and who is finding himself less of a voice in the wilderness as the mood begins to shift in D.C.  

• FTC seeks comments on debt collection & arbitration: Following up on its February report on the 30th anniversary of the Fair Debt Collection Practices Act, the FTC is soliciting comments on protecting consumers in debt collection litigation and arbitration, in anticipation of a roundtable discussion at Northwestern Law School next month. Interested parties are "highly encouraged" to submit written comments or original research through August 1, 2009. Much of the focus will be on the problems posed by mandatory arbitration, and those with an interest in consumer arbitration should consider weighing in.

• First Amendment challenge to FDCPA rejected: In the first published appellate decision on point, the Sixth Circuit yesterday rejected a challenge to the Fair Debt Collection Practices Act (as applied to misrepresentations made in state-court litigation) under the First Amendment and the Noerr-Pennington doctrine. I argued that same issue in a case before the Alaska Supreme Court just over a month ago, so this is welcome news.

Credit Card Issuers Raise Minimum Payments: Is it Because of the Credit CARD Act?

Arthur Delaney of the Huffington Post has the story.

Fallout From Credit CARD Act?

by Jeff Sovern

This morning, the Pittsburgh Post-Gazette published the following essay I had written: 

Private Sector Commentary: New credit card law has teeth

Tuesday, June 30, 2009

By Jeff Sovern

The credit card legislation President Obama signed into law represents a sharp break from previous federal credit card statutes.

Ever since the landmark Truth in Lending Act was enacted in 1968, Congress has focused largely on disclosures of credit card terms on the theory that informed consumers would select the best credit terms available to them.

But rather than just mandating improved disclosures, the legislation contains outright prohibitions on certain credit card terms, such as increases in the interest rates charged on existing balances or sending monthly statements to consumers less than three weeks before the payment due date.

Put another way, you will not be able to agree to those terms with your credit card lender even if you wanted to. This shift reflects a better understanding of consumer decision-making. Classical economic theory of the sort in vogue 40 years ago presupposed that rational consumers, if properly informed, would choose wisely.

White House Proposal Includes Authority to Ban Forced Arbitration

by Deepak Gupta

Included in President Obama's proposed Consumer Financial Protection Agency Act of 2009 is the following provision giving the new agency the authority to ban pre-dispute mandatory binding arbitration clauses:

SEC. 1025. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

The Agency, by rule, may prohibit or impose conditions or limitations on the use of agreements between a covered person and a consumer that require the consumer to arbitrate any future dispute between the parties arising under this title or any enumerated consumer law if the Agency finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of consumers.

This is a big step forward for arbitration fairness.

The measure follows up on a specific recommendation in the Treasury Department's blueprint for financial regulatory reform, which also suggests that the SEC should explore banning forced arbitration . (Jump to pages 62-63 and 72 of the report.) The Wall Street Journal wonders whether this is "The Beginning of the End of Mandatory Arbitration."

NPR's All Things Considered recently ran this excellent report on the forced arbitration debate, featuring Public Citizen's David Arkush.

White House Sends Consumer Financial Protection Bill to Capitol Hill

by Deepak Gupta

Today, President Obama sent a bill to Capitol Hill that would create a Consumer Financial Protection Agency.  You can read the text of the proposed Consumer Financial Protection Agency Act of 2009 here. The package also includes amendments to the Federal Trade Commission Act. The Washington Post has a story on the announcement here.  

Additional information is available at www.financialstability.gov and at the website of Americans for Financial Reform, a two-week-old coalition of 200 national, state and local consumer, employee, investor, community and civil rights organizations that Public Citizen has helped to launch. 

Here's the administration's press release:

With leaders in Congress committed to enacting regulatory reform by the end of the year, the Administration today delivered to Capitol Hill a bill that would create the Consumer Financial Protection Agency. The agency will be dedicated to looking out for American families when they take out loans or use other financial products or services – with a mission to promote access and protect consumers from unscrupulous practices across the market. This new agency will implement and enforce the new credit card bill signed into law by President Obama and Congress and have authority to combat the worst abuses in mortgage markets. This legislation creates an agency to promote transparency, simplicity, fairness, accountability, and access – laying the cornerstone for the effort to fundamentally reform our system of financial regulation.

“This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want – and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past. And enforcement will be the rule, not the exception.”  - President Obama

California's 17200: Have rumors of its death been greatly understated?

by Stephen Gardner

Yesterday, the California Supreme Court issued an opinion, Arias v. Superior Court, that seems to have gutted any hopes of a representative action under California Business & Professions Code § 17200, holding:

[W]e construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law "only if the party complies with Section 382 of the Code of Civil Procedure" to mean that such an action must meet the requirements for a class action.

So, to bring a 17200 case, you must have suffered "injury in fact" and must have lost "money or property" (again, thanks to Prop. 64) and you have to bring it as a class action. Which means getting certified, giving notice, etc. The Court decided against a strict reading of Prop. 64, which would have required a rep plaintiff to meet the requisites of a class action without actually bringing the case as a class action.

Thus, I don't see that there is now a lick of difference between a representational plaintiff, who must also bring suit as a class rep, and any other class rep, except to the extent that the standing requirements as a rep plaintiff under 17200 are stricter than those for many class reps. Bummer.

The case was issued  with a companion case, Amalgamated Transit Union v. Superior Court, which holds that representational plaintiff status can't be assigned to another.

But, who would want that, since it confers effectively no benefit?

I gotta go sit shiva for consumer rights in California now.

Should section 230 be broadened to the traditional media?

by Paul Levy

General Motors’ retreat from its effort to use bankruptcy proceedings to shed tort liability represents a great victory for consumers.  But the Washington Post reported that, in the course of the consumer campaign to achieve that result (which Public Citizen and other groups pursued in the courts as well as in the court of public opinion), GM successfully suppressed an ad by consumer groups.  The story provides a stark reminder about the crucial role played by section 230 of the Communications Decency Act in protecting free speech by consumer interests online. 

Cuomo Case Great News for State Attorneys General

by Christopher Peterson

The Supreme Court has issued an opinion striking down the federal banking regulatory preemption of state fair lending enforcement lawsuits. The Court confronted whether ambiguity in the National Bank Act left the Office of the Comptroller of the Currency free to preempt state fair lending litigation originally brought by former New York Attorney General Eliot Spitzer. In applying the administrative deference standard of Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., the Court explained:

[T]he presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the National Bank Act. We can discern the outer limits of the term “visitorial powers” even through the clouded lens of history. They do not include, as the Comptroller’s expansive regulation would provide, ordinary enforcement of the law. Evidence from the time of the statute’s enactment, a long line of our own cases, and application of normal principles of construction to the National Bank Act make that clear.

Cuomo v. Clearing House Association, LLC.,  No. 08-453, slip. op. at 3 (U.S. June 29, 2009).

The decision reverses the trend in recent years, discussed here and here, of giving free reign to federal banking regulators to squelch the consumer protection efforts of state attorneys general. While the long-term impact of the decision is yet to be clear, the opinion is likely to embolden some state AGs in litigation against national banks and their subsidiaries over the subprime mortgage debacle.

Read the GM Bankruptcy Objection Filed by Consumer Groups

Earlier today, we posted materials concerning the amendments to the GM bankruptcy sale that will save future product liability and lemon law claims. That post neglected to say that these amendments largely redress objections in the bankruptcy case made by national consumer groups, including Public Citizen and the Center for Auto Safety. Read the the Consumer Groups' Objection.  

GM Bankruptcy Sale Agreement Amended to Cover Product Liability Claims

A number of news sources are reporting that the GM bankruptcy sale agreement has been amended to assure that the new company emerging from bankruptcy will be liable for product liability claims. As the New York Times story puts it:  "General Motors and the Obama administration have reached a deal for the carmaker to assume responsibility for product liability claims filed after it emerges from bankruptcy as a new company, even those claims involving vehicles made by the old company, according to documents filed in bankruptcy court late Friday."

UPDATE:  Read the amended sales agreement. The changes are in red and blue.

NHTSA Recalls for May 2009

Check out the the auto safety recalls from the National Highway Traffic Safety Administration for May 2009.

The Role of Predatory Lending in the Collapse of Detroit

by Laura MacCleery

After listening to a stirring speech by Professor Elizabeth Warren of the Senate Congressional Oversight Committee on the bailout last Saturday at the American Constitution Society convention, I was struck by the many similarities between credit card company practices in moving the profitability of financial products towards the “back end” penalties and fees, and those I uncovered several years ago in the automobile lending context.

The coverage of the auto bailout and the collapse of the domestic auto industry has lacked real understanding of how risk was fed into the auto purchase marketplace. The same full range of predatory practices affecting home mortgages were widely used – and perhaps even to a greater extent – by the automobile industry to sell vehicles. 

In general, Detroit has been inattentive to the serious problem of oil dependency for its profitability model, pushing far larger SUVs and pickups on consumers than was justified by transportation needs. It has also been hostile to safety advances, and managerially backwards. These problems are well known. Less well understood is that, through predatory lending practices, they’ve been taking their customers to the poorhouse with them.

When I was at Public Citizen, we wrote a report in 2003, entitled Rip-Off Nation, detailing many of the fraudulent and misleading aspects of auto purchases. We worked closely with a whistleblower who had been an auto dealership employee and was familiar with many of the tricks and traps then being used to saddle consumers with overpriced auto loans, and published real examples of actual auto lending documents demonstrating the scams. Without the mortgage lending example to illustrate the problem and its potential economic costs, our work to raise the issues largely fell on deaf ears.

Yet the situation has only worsened since, and the number of consumers who are underwater in their loans continues to climb. In December 2008, as The Denver Post reported, both the number of “upside-down” new vehicle purchases and the amount that consumers owe on auto loans have ballooned:

Ninth Circuit Cleans Up Its Own Section 230 Mess — Motions to Dismiss Are Allowed Again

by Paul Levy

The Ninth Circuit has retracted some of the dangerous dictum in its recent decision in Barnes v. Yahoo!, discussed in this blog last month here and here. The panel opinion had asserted – in dictum which, under Ninth Circuit procedure, actually constituted binding precedent – that Internet Service Providers’ section 230 immunity from suit cannot be raised on a motion to dismiss.  In response to a petition for rehearing filed by Yahoo!, and to an amicus brief filed by Public Citizen along with several other organizations, the court issued an amendment that simply deleted that part of its opinion.  The court also attempted, a bit grudgingly, to clean up some text and a footnote of its previous opinion, which had apparently stated that section 230 immunity applies only to state law claims, even though courts generally (including a Ninth Circuit en banc opinion last year) had held that it extends to federal law claims as well.   The cleanup is not ideal — the text of the opinion still states “[S]ubsection (c)(1) only protects from liability . . . a provider or user . . . whom a plaintiff seeks to treat, under a state law cause of action⁴ as a publisher or speaker.”  But the new footnote 4 plainly recognizes that 230(c)(1) extends to federal law causes of action, albeit rather in contradiction to the text which retains the word "only."  It is fair to assume that other courts will recognize what the panel’s intent was.  Props to Eric Goldman for calling attention to this second flaw in the opinion.

House Financial Services Committee Holds Hearing on New Consumer Financial Protection Agency

The Financial Services Committee of the U.S. House of Representatives held a hearing regarding the establishment of a new Consumer Financial Protection Agency. Go here to see a webcast of the hearing and the written testimony of a range of experts such as Elizabeth Warren, Ed Mierzwinski, and Kathleen Keest.

Judge Sotomayor's Record in Business and Consumer Cases

by Deepak Gupta

The Alliance for Justice has issued a report on Judge Sonia Sotomayor's record in business and consumer cases. It covers several topics several likely to be of interest to this blog's readers, including arbitration, deceptive and unfair trade practices, debt collection practices, bankruptcy, and intellectual property. There's nothing earthshattering in the report -- which is designed to support her confirmation by describing her as a mainstream judge who merely "follows precedent" -- but it does provide a useful summary of her opinions in those areas.

FTC Chair Jon Leibowitz Calls for Ban on "Pay-for-Delay" Drug Settlements

In a speech yesterday, FTC Chair Jon Leibowitz explained that a study done by his agency shows that ending so-called “pay-for-delay” settlements between brand-name and generic drug companies would save consumers $3.5 billion a year. He called for Congress to ban or restrict those settlements. In pay-for-delay settlements, the brand-name company pays a generic company that has challenged the brand-name company's patent to stay out of the market.

For a quick synopsis, check out the FTC's press release, or, for more details, read Leibowitz's speech in full.

Foreclosure Crisis Growing?

This article in today's Washington Post explains that mortgages on about 1 million U.S. homes are seriously delinquent, meaning that the home foreclosure crisis is likely to get worse before it gets better.

CPSC Recalls for June 2009

Check out the Consumer Product Safety Commission's product safety recalls for June 2009.

Peanut Butter and the Proposed Consumer Financial Protection Agency

by Jeff Sovern

Once upon a time, in a not-so-distant country, peanut butter sales were regulated in a distinctive way.  Grocery stores that sold peanut butter were regulated by one agency; supermarkets by another agency; and convenience stores that sold peanut butter by a third agency.  Stores that were chartered by the federal government had one set of regulators while those chartered by states had a different set.  These agencies had many different responsibilities, including some that conflicted at times.  They were charged with insuring that the peanut butter was appropriate, but also that the stores they regulated used their resources wisely.  Peanut butter sellers could choose which agency would regulate them by deciding whether they were a supermarket, grocery store, or convenience store or whether they would be chartered by the federal government or a state.  And because some peanut butter regulators received their revenue from fess paid by the peanut butter sellers they regulated, the regulators had an incentive to attract and keep peanut butter sellers to regulate.  The more peanut butter sellers you regulated, the more revenue you had.  That meant they had an incentive to regulate lightly and protect peanut butter sellers.

One day, one of the sellers came up with a new kind of peanut butter which combined some old and some new ingredients and was cheaper at first than the old peanut butter.  It began selling this new peanut butter to people who could not formerly afford peanut butter.  Lots of people bought the new kind of peanut butter and soon other peanut butter sellers began selling it too.  They made lots of money for a while.  Regulators weren’t worried about the new type of peanut butter because the ingredients were all listed on the jar.  In fact, some thought it was great that some people who formerly couldn’t afford peanut butter could now buy it.  Besides, if they intervened to prevent sale of the peanut butter, the peanut butter sellers they regulated would just change what kind of business they were and get a different regulator, and that would cost the regulators revenue—and wouldn’t keep the sellers from selling the new kind of peanut butter.  Some also believed that too much peanut butter regulation would make peanut butter too expensive and choke off innovation in peanut butter.  When some state peanut butter regulators tried to prevent sale of the new peanut butter, federal regulators went to court to stop them.

But the consumers who bought the new kind of peanut butter weren’t able to figure out from the list of ingredients what effect the peanut butter would have on them over the long term.  The list of ingredients was long and confusing, and the consumers lacked the experience needed to make sense of it.  After a while, a lot of the consumers started getting sick from the peanut butter.  They stopped doing things that they had formerly been able to do, and that hurt even people who hadn’t bought the new peanut butter.  Some of them stopped paying for their peanut butter, and that hurt the peanut butter sellers.  Some of the sellers started losing money, so much money that some of them went out of business.  The government became concerned that peanut butter would no longer be available, and so it gave lots of money to some of the biggest peanut butter sellers to keep them in business. 

Then some people said that a new agency was needed to protect consumers from peanut butter that was bad for them.  This said that protecting people from bad peanut butter was so important that the agency should have that as its sole mission instead of having it as one of several goals that might sometimes conflict with protecting people from bad peanut butter.   They pointed out that other products, like jelly were regulated in such a way and that jelly regulators just thought about whether the jelly was safe and sound, rather than thinking about whether the jelly sellers were safe and sound.  They said that having the ingredients listed on the jar wasn’t always enough and that this agency should have the power to ban peanut butter that contained ingredients that were harmful.  They said that the agency should have the power to regulate all peanut butter sellers whether they were a grocery store, convenience store, or supermarket.  They said that the new agency should have the power to make stores sell plain peanut butter and that if stores wanted to sell peanut butter with special ingredients, they should have to do more to explain to consumers what was special about it.

But the peanut butter makers thought this was a bad idea.  They argued that the new agency would impose a new set of regulations.  They pointed out that most peanut butter sellers had not sold the bad peanut butter but would have to pay for complying with the new regulations.  They wondered how the new agency would be paid for.  They were concerned about how the new agency would decide what plain peanut butter was and feared that the agency would stifle innovation.  Because the peanut butter sellers were rich and gave lots of money to politicians, could afford to hire very good advocates to make clever arguments, and knew things about the peanut butter business that no one else knew, they were listened to carefully.  Of course, the peanut butter sellers were not thinking about the fact that the new agency would not have to compete with other agencies to attract sellers to regulate and so would not tailor its regulations to attract such sellers. They were solely concerned with the public good.

And consumers put peanut butter and jelly on sandwiches even though the two were subject to different regulators and rules.